Gas

A new government report is forecasting that the average price for a gallon of regular gasoline in 2015 will be $2.94.

It seemed like quite a big deal when the national average for gasoline dipped under $3 recently. The price of the average gallon of regular had started with a $3 from late December 2010 all the way until the beginning of November 2014, when at long last it dropped below the mark. The national average as of Thursday, according to AAA, is $2.917, and some states, such as South Carolina and Tennessee, are averaging under $2.70.

According to a report this week from the federal Energy Information Administration, it looks like sub-$3 gas prices will be sticking around for a while. The report projects that gas prices will keep declining through the end of the year, with a national average of $2.80 expected for December. And the average for 2015 as a whole is being forecast at $2.94 per gallon.

The retail price of gasoline is tied to the wholesale price of crude oil, and due to bountiful supply and shrinking demand, the EIA is predicting that the cost of crude will average $77.75 per barrel next year, compared with $95 in 2014 and $97.91 in 2013. Accordingly, prices at the pump are expected to be cheaper in 2015—averaging $2.94, compared with $3.39 this year and $3.51 in 2013.

If the forecasts hold up, by December the national average will have dropped 90¢ from the 2014 high, and the 2015 average will be roughly 70¢ lower than that of 2012—when it was $3.63, the overall most expensive year (thus far) for gasoline.

It's been nearly four years since the national average for a gallon of regular gasoline started with a $2. But on Saturday, we'll drop below the $3 mark.

That’s according to AAA, which measured the national average at a flat $3 (actually $3.003) as of Friday, and forecasts that the run of 1,400+ days of $3+ gasoline will end as of Saturday, November 1, 2014. The last time the price of a gallon of regular gas was under $3 nationally was December 2010.

Gas prices have been dropping roughly 1¢ per day lately, and the national average right now is about 70¢ less than the high for 2014, reached in spring. AAA notes that after the steady autumn decline in prices at the pump, more than 6 out of 10 U.S. gas stations are already selling gasoline starting under the $3 mark.

Like the Dow hitting 17,000, the fact that gas prices are dropping below the $3 milestone may sound impressive, but when viewed clinically and dispassionately, it’s not that big of a deal—a tiny incremental shift that’s part of a larger trend, not some big and sudden change—and it probably shouldn’t cause you to alter your behavior in the slightest. Sure, there’s a subconscious mental bump consumers get when gas prices start with the number $2, and perhaps some dollar stores and discount chains will benefit during the holiday season because low-income consumers will be able to spend a little more freely because the cost of fueling up is down. And yes, retailers and the economy in general will fare better when gas prices are in the $3 vicinity rather than the $4 or $5 range.

Overall, however, the effect on the economy of decreasing gas prices—even gas prices dropping below $3—is expected to be minimal, due in part because few anticipate fuel costs staying at such depressed rates for long. “Paying less than $3.00 for gas is a welcome holiday gift that may not last nearly as long as many would hope,” Bob Darbelnet, CEO of AAA, said via press release. “It is possible that lower gas prices will soon be a faded memory, so enjoy it while you can. The days of paying more than $3.00 per gallon for gas have regrettably not gone away.”

The tradeoff for later sunsets during daylight saving time is that you're more likely to be out and about, dropping cash.

At 2 a.m. on Sunday, November 2, the observation of daylight saving time will end and the clocks will “fall back” to the standard time, 1 a.m. Despite the fact that the shift grants the vast majority of Americans a much-welcomed extra hour of sleep, many would prefer to do away with the twice-annual time change.

Arizona and Hawaii already don’t bother with daylight saving time, and it looks like Utah could be next. In an online survey that collected more than 27,000 responses, two-thirds of Utahns favored staying on Mountain Standard Time year-round, like Arizona does. “Convenience really stood out” as a major reason why folks want to get rid of daylight savings, the leader of a government committee studying the topic explained to the Salt Lake Tribune. “People don’t want to move their clocks forward, backward … They just want to set them and leave them.”

OK, so doing away with daylight savings would make life simpler—but only very slightly so, since our computers and smartphones and other gadgets change their clocks automatically. More important, what’s the argument to keep daylight saving observation in place?

Daylight saving time was first embraced during World War I, when the idea was that the spring shift would help conserve coal because people would need less light and heat since they had more daylight during their waking hours. The concept that daylight saving saved on energy costs persisted for decades but has recently been declared patently false. Later sunsets during the warm months mean a higher likelihood that Americans will spend their evenings driving around and doing stuff, meaning more need for gas and air-conditioning during waking hours.

The ability for Americans to be out and about enjoying the later sunset amounts to an economic stimulus, because odds are we’re spending more money when we’re out. Michael Downing, a Tufts University professor and author of Spring Forward: The Annual Madness of Daylight Savings, explained to The Takeaway public radio program that the main beneficiaries of daylight saving include the golfing, tourism, and recreation industries—all of which attract more business when there’s more daylight after the traditional work day is done.

For that matter, all manner of shops and small businesses love what’s perceived to be a longer day, because it pushes consumers outside later into the night. “Since 1915, the principal supporter of daylight saving in the United States has been the Chamber of Commerce on behalf of small business and retailers,” said Downing. “The Chamber understood that if you give workers more sunlight at the end of the day they’ll stop and shop on their way home.”

A Tufts blog post noted that in 2005, daylight saving time was expanded from seven to eight months, including the key step of delaying the “fall back” until the first week of November—a move spurred on thanks to pressure from lobbyists supporting candy manufacturers and convenience stores. Why would they want such a change? Kids would get an extra hour of daylight for trick-or-treating, meaning more candy consumption and more candy purchases. Later sunsets for more of the year also mean more people out on the roads needing to swing by convenience stores to gas up or grab snacks.

As a result of these changes, we somewhat bizarrely now observe daylight saving for the vast majority of the year. “Today we have eight months of daylight saving and only four months of standard time,” Downing said. “Can you tell me which time is the standard?”

To some extent, the autumn return to standard time balances things out. With earlier sunsets, we’re out on the roads less, and therefore there’s less need to gas up the car. So there’s some savings there. Still, for much of the country, people wouldn’t be playing golf or having barbecues or visiting national parks anyway at that time of year because it’s just too cold.

And remember: Daylight saving is eight months of the year, versus only four months for “standard” time. Also: While daylight saving serves as an economic stimulus for two-thirds of the calendar year, standard time has its own epic consumer stimulus, in the form of Black Friday and the ever-expanding holiday shopping season.

Lower fuel costs helped Spirit Airlines' stock soar this week, and may even mean cheaper flights for travelers. Just don't expect Spirit's fees to disappear anytime soon, or ever.

A sizable chunk of travelers hate Spirit Airlines and its cramped-seat, a la carte, fee-crazed business model. In a new MONEY poll, voters prefer the option of flying with snakes on a plane over flying on a Spirit plane. Yet investors sure are loving the company’s third quarter results, which were made public on Wednesday. Spirit’s adjusted net income for the quarter is up 28% year-over-year, while total operating revenue was up 14%. The results bumped the price of Spirit stock up more than 7% on Wednesday, and Morgan Stanley just named Spirit its top growth airline pick for investors.

What’s particularly interesting is that Spirit’s performance and its plans for expansion are likely to benefit non-investors as well. The airline’s sales pitch to travelers is based almost exclusively on the low prices of its “Bare Fare” flights, and analysts see the stars aligning that will allow Spirit to cut base fares even lower. It’s possible that this turn of events could even help out travelers who would never fly with Spirit Airlines—because other carriers may feel forced to scale back fares, or at least slow the pace of fare hikes, in order to compete with Spirit’s cheaper flights.

Only three weeks ago, Spirit stock dipped significantly because of fears that higher company costs—including tax payments and the hiring and training of more pilots—would be headwinds getting in the way of higher profit margins. Yet a Motley Fool post pointed out this week:

Looking ahead to Q4 and 2015, these cost headwinds are likely to turn into tailwinds due to 1) lower jet fuel prices; 2) faster growth; and 3) a shift toward larger, more efficient aircraft.

Airlines typically spend about 30% of their revenue on fuel. So when gas prices drop like they have been lately, it’s a huge deal for the airline industry. For the most part, airlines will simply pocket the fuel-cost savings rather than pass any of it along to travelers in the form of cheaper flight prices.

But there’s reason to believe that Spirit Airlines is different. After all, the airline’s main (only?) selling point is that the base price of flights is cheap, so it will lower fares to attract more customers whenever a price cut can be justified. In addition to lower fuel costs, Spirit is expanding rapidly (28 new routes added between August 2014 and April 2015), and has been getting more productivity out of planes and employees. All of which helps the company lower costs—and enables it to make its product more attractive to customers by lowering prices.

In a conference call with investors yesterday, Spirit CEO Ben Baldanza said that’s essentially what the airline plans on doing. “The customers we seek to attract overwhelmingly ranked total price as the most important variable when choosing an airline,” Baldanza said. As Spirit manages to keep the costs of fuel and other expenses low, “that’s a great thing for our model, and that means even lower fares for customers and a good thing for investors.”

And who knows? Spirit’s expansion and low-fare strategy may very well compel the larger airlines to compete more on flight prices as well. Now that fuel prices are shrinking and airlines are enjoying record-high profits, it certainly wouldn’t kill them to do so.

This week, the national average for a gallon of regular should hit $3, a low that hasn't been reached since 2010. That means consumers will have more money to spend during the holidays, right?

Not so fast.

Yes, gas prices have been plummeting in the U.S., bringing much-welcome relief to household budgets. Average prices around the country reached a new low for 2014 recently, and then just kept on falling, hitting a low not seen since 2010. As of Monday, according to AAA, the national average stood at $3.04 per gallon after falling 32 days in a row, making prices at the pump 25¢ cheaper compared to the same time one year ago. With prices falling roughly 1¢ per day (the average was down to $3.03 on Tuesday), we’re on pace to reach the all-important psychological mark of $3 per gallon by the end of this week.

But let’s step back. Is the $3 mark—and cheaper gas prices in general—really all that important for the economy as a whole?

A GasBuddy post crunched some numbers, and found that Americans are collectively saving $110 million per day on gas compared to what we spent a year ago. The timing of decreasing gas prices would seem to bode well for retailers, which are hoping that some of that money that’s not being spent on gas will be spent instead on holiday purchases in the weeks ahead. Data from the research firm Deloitte indicates that retail holiday sales will rise 4% to 5% this year, or perhaps even higher considering that the average household could spend $260 less on gas for 2014 as a whole.

Retail analyst Mary Epner told CNBC recently that cheaper gas prices could wind up giving a boost to a few categories of retail in particular:

“A drop in gas prices should be great for Ross Stores, Walmart, and dollar stores (for consumers who must live paycheck to paycheck),” she said. “This also helps low-cost teen retailers, as most teens have a finite amount of money and they will usually opt to put gas in their cars before buying other things.”

Overall, however, cheaper gas prices shouldn’t necessarily be viewed as a holiday season savior for retail. As a recent Fortune post pointed out, gas prices had already begun their downward trajectory in September, but the month was basically a dud in terms of consumer spending. The effect of cheaper gas on holiday spending is expected to be minimal as well. At the higher end of the income spectrum, shoppers aren’t going to alter holiday spending based on gas prices shifting by 10% or even 20%. For middle- and low-income earners, stagnant wages, weak hiring, and higher costs for housing and health care are likely to far outweigh any “savings” that come via cheaper gas prices.

What’s more, as a Bloomberg News story noted, today’s shoppers have grown so accustomed to huge discounts that they’re programmed to ignore all but the most dramatic price slashings and promotions. Add in that over the past few years, drivers have seen gas prices retreat, rise, then retreat and rise again, so there’s an appropriate level of skepticism concerning the idea that we could be paying less for gas for the long haul.

Few people will head promptly to the mall and splurge because the price of a gallon of gas drops by a few pennies. Nor should they.

But you may still feel like you're paying more. Here's why.

Gas prices have been plunging lately. For consumers, that’s great! It’s more money in your pocket.

Gas now averages $3.07 a gallon nationwide, down from $3.60 in June and $3.30 a year ago. That’s billions of dollars of savings for U.S. households.

But gasoline is one of the few products whose prices we vividly remember. Behavioral economist Daniel Ariely once explained:

For the several minutes that I stand at the pump, all I do is stare at the growing total on the meter — there is nothing else to do. I have time to remember how much it cost a year ago, two years ago, and even six years ago.

Gas may be cheaper today than it was a year or two ago, but I’ve heard several people recently say, “Sure, but I remember when it was $1.50 a gallon!” That nostalgia makes us think we’re still paying a fortune at the pump.

But several other things have changed lately that affect the real price of gasoline:

• The average car has a much better fuel economy today than it used to.
• The average American is driving less than they used to.
• Average nominal wages are higher today than they used to be.

You have to adjust for all three improvements to show the true price of gas, and the real impact it has on our wallets.

When you do, the real price of gas is lower today than it was a decade ago, and about the same as it was in the early 1990s:

One of the most important forces in economics is that people adapt. And that’s what you’re seeing here.

Gas prices surged in the early 2000s, so auto companies started building more fuel-efficient cars, which consumers demanded (as did new regulations).

Fuel-efficient cars used to be dinky little toys that you’d be embarrassed to drive. That’s changing. GM GENERAL MOTORS CO. GM 0.732% CEO Mary Barra commented last month: “The customer has that expectation. It’s not an ‘or’, it’s an ‘and.’ They’re expecting to have winning vehicles, but also to have the fuel efficiency. It becomes a business priority.”

Consider: A 1999 Chevy Suburban got 18 miles per gallon and had 290 horsepower. A 2015 Suburban gets 23 miles per gallon with 355 horsepower.

High gas prices also likely played a role in pushing families from the suburbs into the cities, where commutes are shorter. As Reuters reports: “In 2010, a total of 80.7 percent of Americans lived in urban areas, up from 79 percent in 2000. Conversely, 19.3 percent of the U.S. population lived in rural areas in 2010, down from 21 percent in 2000.”

I’m not a fan of forecasts, because they’re pretty much all wrong. But here goes: Over the next 20 years we’ll see moderately higher gas prices combined with much better fuel economy. Taken together, this chart — with all its adjustments — won’t look too much different two decades from now than it does today.

“Intelligence is the ability to adapt to change,” Stephen Hawking said. And we are.

For more on this topic:

• 50 reasons we’re living through the greatest period in history
• When America stopped driving
• The most important numbers of the next half-century

Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends General Motors, and has a disclosure policy.